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Bend and Stretch: Our Eighth Annual Cost Management Survey

The best companies remain focused on cost cutting, whatever the business cycle.

For Cox Communications Inc., the Atlanta-based cable operator, success depends on “developing new products and applications for future deployment” even though the industry is “somewhat recession resistant,” says CFO Jimmy Hayes. While such developments require a continued investment in SG&A, he says, it must be done with “a balanced perspective.” In 2000, that perspective meant spending only 36.3 cents on SG&A for every dollar of operating revenue it generated, and recording a CMI of 60.7 — 1,730 basis points better than its industry.

Of course, the CMI is not a perfect indicator of the future, as Ford’s first-place finish in the auto industry certainly illustrates. And considering how earnings have dropped at many companies, Scheumann says the index is destined to go up next year — although not as much as one might expect. “Historically, SG&A rises as the business cycle is on the upswing and declines are on the downside, but on a lag basis. So in 2001, revenues will be down, but SG&A won’t be down in proportion.” The true reflection of the current cost-cutting binge, therefore, won’t be seen until the 2002 numbers. “It all goes back to the flexibility question,” he says.

Lori Calabro is a deputy editor of CFO.

Methodology: A Focus on Flexible Cost Cutting

CFO magazine teamed with Gunn Partners, an Exult company, on this year’s annual Cost Management Survey. The survey sample is based on publicly traded companies, including international companies, that reported at least $750 million in revenue annually for the years 1997 through 2000. More than 1,000 companies were grouped into 40 major industry groups. Company data was sourced in a standardized format from Media General Financial Services Inc., in Richmond, Virginia.

Data was analyzed for consistency and comparability across companies and industries. Metrics were calculated to assess cost efficiency and performance. This year, like last, the perspective was broadened to look at both COGS and SG&A (before depreciation and amortization). For financial firms, noninterest expense was used.

Candidates were ranked by their cost management index (CMI), which equals COGS plus SG&A, divided by operating revenue. The accompanying table shows the North American-based CMI leaders in each industry.

Cycle Riders: Leading Cost Containers in 40 Industries, 1997-2000

All values are % of operating revenue

1Cost management index = (COGS + SG&A) / operating revenue for 2000

2Average cost management index for 1997­-2000

3Compound annual growth in operating profit before depreciation

Analysis performed by Gunn Partners, an Exult company
Data provided by Media General Financial Services Inc.

Company 2000 COGS 2000 SG&A 2000 CMI1 ’97-’00 CMI Avg.2 ’97-’00 Earnings Growth3
Cox Communications


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